NewRetirement Retirement News Digest : Life Settlements

Ways to Ease the Pressure of a Cash Crunch

jberman — Thu, 15 Oct 2009 08:30:00 GMT

The New York Times, October 14th, 2009

MANY retirees are in a cash crunch — with a lower income stream from their investment portfolios, personal expenses that are higher than expected, or both.

While most assets can be used to generate liquidity, deciding what to do requires careful deliberation; there are many pitfalls. Here are the most commonly used approaches for people who find themselves coming up short during retirement, and an analysis of their pros and cons.

CASH FROM YOUR HOME Mortgage rates are so low that many financial planners say the best way to raise money is to take out a conventional mortgage or a home equity line. But reverse mortgages, which allow homeowners who are at least 62 to borrow against the equity in their homes and receive regular monthly payments, are often seen as a last resort. Some financial planners even advise retirees to sell their investment portfolios or cash in their life insurance policies before taking out a reverse mortgage.

Unlike traditional mortgages or home equity lines, a reverse mortgage requires no payments until the borrowers die or no longer use the home as their primary residence. Then the mortgage must be paid in full. Closing costs, fees and interest rates are also generally high, reducing the amount of money that borrowers can leave to their heirs. Yet if retirees have exhausted other options, a reverse mortgage may be worth considering, especially for those with high medical expenses, said Alicia H. Munnell, the director of the Center for Retirement Research at Boston College. “If you’re not planning on leaving your house to a child, then this is an option, rather than depriving yourself during your lifetime,” she said.

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Is this subprime redux?

jberman — Sat, 12 Sep 2009 05:15:00 GMT

Las Vegas Sun, September 10th, 2009

Many Wall Street investment banks are on the verge of taking the plunge into another scheme that involves bundling and reselling what are thought to be sure-thing assets, just as bundled subprime mortgages were thought to be sure things.

The banks are planning to buy life insurance policies from senior citizens and make money by selling them to investors, who would cash in if the seniors soon died.

It would work, morbidly, like this: A senior citizen would be persuaded to sell his life insurance policy for instant cash. If the policy is for $500,000, the bank would pay, say, $250,000.

The bank would then take over the premiums, become the beneficiary and find an investor for that policy. If the senior citizen were to die two years later, the bank and investor would share a profit of $125,000 for each of those two years, minus the premiums paid.

Such “life settlements” have been around for decades but on a rather insignificant scale. Now the big banks, trying to recover from their subprime fiasco, are in serious talks about buying life settlements in massive quantity, bundling them into securities and selling them to national and international investors.

Life Insurers Profit as Retirees Fear Outliving Cash

jberman — Thu, 27 Aug 2009 06:22:00 GMT

Bloomberg, August 13th, 2009

Sales of so-called immediate annuities are climbing as retirees are drawn to lifetime payments guaranteed by U.S. insurance companies.

Immediate annuities pay a periodic fixed amount of money for life in exchange for a lump-sum payment. New York Life Insurance Co., the largest policyholder-owned U.S. life insurer, reported an 80 percent increase in sales of the contracts during the first quarter from a year earlier.

“This is just the tip of the iceberg,” said Chris Blunt, executive vice president of retirement income security at New York Life. “As more baby boomers need to turn assets into income, they’ll choose income annuities to guarantee they can at least cover basic expenses.”

Sales of immediate annuities, which start making payments to investors within 13 months from when they’re purchased, rose 30 percent to $8.6 billion in 2008, according to estimates by industry analysts at Beacon Research in Evanston, Illinois. The gain compares with the 15 percent decline in sales of variable annuities last year and the overall 50 percent increase in sales of fixed annuities, said the New York-based Insurance Information Institute, which uses data from LIMRA International Inc.

Insurers are counting on revenue from annuities to counter investment writedowns from the collapse of the U.S. mortgage market. Industry-wide losses have been more than $190 billion since the beginning of 2007, according to data compiled by Bloomberg. There have been a total of 30 downgrades to companies within the life insurance industry by Standard & Poor’s since 2008, including multiple downgrades to some companies.

Irrevocable Control

Retirement planners say that because of fixed payouts and loss of control over initial investments, immediate annuities shouldn’t be the only savings plans consumers consider. Since an immediate annuity contract gives irrevocable control of the lump-sum payment to the insurance company, retirees can no longer access their cash.

Investing in a sure thing: Life insurance

jberman — Tue, 28 Jul 2009 05:10:00 GMT

Arizona Republic, July 26th, 2009

Selling life-insurance policies on the secondary market is an increasingly popular way for investors to capitalize on one of life's surest events: death.

Investors, including some major players on Wall Street, buy the policies in bunches, pay the premiums and collect millions upon the death of the insured.

First introduced in the late 1990s, the life-settlement industry has swelled to at least a $12 billion market, according to Connecticut-based Conning Research & Consulting Inc.

Several large investment firms, including Goldman Sachs, JP Morgan and Wells Fargo, have experimented with life settlements.

Opinions about the business are diverse, but many experts agree the market is beneficial to both the buyer and seller.

The secondary market allows elderly policyholders who may no longer need life insurance to sell the policy for several times more than the insurance company would pay for a cash surrender.

"What the insurance companies will pay you is a lot less than what the policy is worth," said Alan Rosenfield, managing director of Harmony Asset Management LLC in Scottsdale.

Life-settlement buyouts can reach six figures, and some policies have been sold for over $1 million.

"Given a policy's true value in the secondary market, life settlements offer someone considering surrender a sensible and compelling alternative," said Marc Ruskin, a regional vice president for Life Equity LLC.

But a life settlement may not be appropriate for everyone.

Rising prices hammer seniors on fixed incomes

tsaleen — Mon, 07 Jul 2008 16:25:00 GMT

USA TODAY - July 2, 2008

Long before workers at the San Diego Food Bank began distributing cardboard food cartons from the back of a truck on a recent day, elderly men and women, many needing walkers and metal canes, formed a line in a church parking lot.

The free food amounts to a lifeline for these seniors, who have seen inflation wring much of the value out of their fixed incomes. For these retirees, the prices of essentials — notably, gas and food — have galloped beyond reach. Perhaps most of all, they're straining under the weight of crushing medical costs.

Nearly all Americans have felt the sting of inflation in recent months. But when you're retired and your sole means of support is a fixed amount that arrives each month — from Social Security and, for the lucky ones, a pension — the pain is especially severe.

Until recently, many retirees had assumed they had enough income to retire on. That was before gas and food prices began racing out of control.

Early Retirees in New Ventures, Mostly for Fun

tsaleen — Mon, 07 Jul 2008 16:14:00 GMT

New York Times - July 3, 2008

RISK-AVERSE? Clueless as to what P.&.L means? You, too, can be an entrepreneur.

Not the hard-driving type who makes the business news pages. Rather, the laid-back, come-what-may variety. Many of them are part of the first wave of America’s 76 million baby boomers who are taking early retirement and turning their hobbies into small businesses. Very small businesses.

They say their microbusinesses are a way to give focus to a favorite pastime, get more zest out of life and make a little money. The best part is they do not care if the ventures fail.

For all their insouciance, these quasi-entrepreneurs display some of the symptoms that drive their mainstream brethren. Their compulsion to escape the restraints of the workplace before they turn 65, for example, reflects their desire to run their own show.

Carl Boast, owner of Peaceable Kingdom Photos in Moneta, Va., was making a hefty salary in New Jersey as a neuroscientist in the pharmaceutical industry when he decided he “wasn’t a fan of working for a living” and began plotting his departure.

Against the advice of his financial adviser, who worried about how much money he was letting slip away, he quit his job five years ago at age 55 and moved to a five-acre property on Smith Mountain Lake in Virginia that now includes a 2,700-square-foot home, a guesthouse, a pontoon boat, a canoe, a tandem kayak, three single kayaks, two one-person sailboats and a jet ski.

He says he is too busy hiking, boating, reading, writing songs and traveling to fit the definition of an entrepreneur. “I’ve put very little effort into marketing,” he said. “I’m not out to make money or change the world.” He has created a Web site, he says, but it is “buried in Earthlink somewhere” and is out of date.

What really motivates him, he said, is “sharing my pictures to convey the idea, ‘Wasn’t this a neat moment?’ ”

And yet, he displays entrepreneurial traits. He had that a-ha moment many entrepreneurs describe when his wife, Linda, asked what he planned to do in retirement and he blurted out, “nature photographer.”

Soon after, he bought photography equipment, learned to cut mats and read guides like “The Business of Nature Photography.” He marketed his products at craft shows held by his employer, Wyeth Pharmaceuticals. He felt the jubilation of making his first sale.

Weathering Tough Financial Times—The Long-term Costs of Quick Cash

tsaleen — Mon, 07 Jul 2008 16:11:00 GMT

Financial Industry Regulatory Authority, June 26, 2008

Rising costs of food and fuel, declines and volatility in the housing and financial markets, and an ever-tightening credit crunch have gathered to form a perfect storm that could lead some Americans to make poor financial choices. Not so long ago, those who faced a temporary financial setback, such as the loss of a job, a health emergency or an unexpected expense, could borrow or use credit to get by—and many still do. Recent data from the Federal Reserve show consumer use of credit cards and revolving lines of credit at an all-time high.

But while some Americans use credit as a safety net to weather life's occasional storms, others rely on it as a way to finance a lifestyle they otherwise could not afford. Debt has become a norm in the U.S.—and, according to the Center for Responsible Lending, households are finding it difficult to break that cycle. Similarly, personal bankruptcy filings continue to rise—as does the age at which consumers declare bankruptcy. A recent study by AARP found that in 2007 more than 1 in 5 debtors were over the age of 55, compared with 1 in 10 in 1991. The study also found that the rate of personal bankruptcy filings among those ages 45 to 54 had jumped by more than 48% from 1991 to 2007. For those ages 55 to 64, the rate rose by 150%—and for those ages 75 to 84, 433%.

In tough financial times, many investors feel pinched for cash—and some may search for different, often risky ways to make ends meet. Troubling trends include investors leveraging or prematurely depleting their retirement savings, trading in their insurance policies in transactions known as "life settlements," and tapping their home equity through reverse mortgages.

Who Is Paying for Your Long-Term Care?

jberman — Wed, 16 Jan 2008 06:51:00 GMT

Senior Spectrum Online, January 15th, 2007

Many Americans assume that Medi-care, supplemental policies or standard health insurance policies will cover their long-term care expenses — an assumption that often leads to severe financial hardship down the road.

Many people do not plan ahead financially to provide for their care in the event of frail health. Depending on the long-term care required, costs easily can exceed $50,000. Paying for long-term care involves multiple considerations, according to the U.S. Department of Health and Human Services (DHHS).

The chief consideration is whether or not the funding source can only be used for long-term care costs. Also of concern is the impact on heirs, the rate of asset accumulation, any eligibility requirements and the risk that the funds will be insufficient to meet long-term care needs. Additionally, some programs require financial need or other eligibility requirements.

Surprisingly, most long-term care is paid for by long-term care recipients or their immediate family. “The most common method is using private funds,” explained Lauren Shaham, Vice President Member Communications and Media Relations for the American Association of Homes and Services for the Aging.

“Following that many people use Medicaid.”

Relying on family to provide or finance long-term care provides flexibility but has the drawback of carrying a moderate risk of financial insufficiency, according to DHHS. In addition, the person receiving the services often feels serious guilt over burdening family members.

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Life Settlements on NewRetirement: Learn who should consider a Life Settlement at NewRetirement.com.

An Innsurance Man Builds a Lively Business in Death

jberman — Tue, 04 Dec 2007 03:27:00 GMT

The Wall Street Journal, November 26th, 2007

Alan Buerger wants to show investors the upside of death.

The former insurance salesman runs Coventry First LLC, which lets investors essentially bet on -- and profit from -- other people's demise.

His company is in the business of buying rights to life-insurance policies. In an arrangement known as a "life settlement," Coventry pays the holder a lump sum for the policy now, takes over paying the premiums for as long as the insured person lives, then collects the benefits -- generally worth far more -- when the person dies. Coventry keeps some of the policies in its own portfolio. It sells others to institutional investors. From an investor's standpoint, as a general rule, the sooner these people die, the better.

This positions Mr. Buerger at the forefront of a controversial but rapidly growing industry. So far, the life-settlement business involves a tiny slice of the $9 trillion in individual death benefits pending in the U.S. But an industry trade group, the Life Insurance Settlement Association, has grown from 16 member companies at the decade's beginning to 165 today, including major firms such as Deutsche Bank AG.

Now banks including Goldman Sachs Group Inc., Credit Suisse Group and Bear Stearns Cos. want to expand the industry further. In April, these banks helped form the Institutional Life Markets Association to lobby against efforts to restrict the business. Some Wall Street firms are also seeking to buy policies more directly, trying to cut out parties such as Coventry. This year, Cantor Fitzgerald LP set up an Internet-based exchange for those who want to sell or buy policy rights.

Life settlements stir objections, and not only because they make some people squeamish. Some state regulators have called life-settlement terms unfavorable in some cases to policyholders. They've also charged that certain arrangements flout the spirit of laws designed to keep speculators from taking out policies on strangers.

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Life Settlements on NewRetirement: Learn who should consider a Life Settlement at NewRetirement.com.

Retirement income products reduce guesswork with nest eggs

jberman — Fri, 12 Oct 2007 01:19:00 GMT

Marketwatch, October 11th, 2007

Everyone is tripping over themselves to launch retirement income products, funds (and annuities) that take the fuss and mess out of how retirees figure out what they can withdraw from their nest eggs without having to worry about outlasting their money.

To wit: Vanguard has announced plans to offer three "Managed Payout" funds designed to provide income and preserve capital, and Fidelity Investments last week launched a "suite of retirement income" products, including income-replacement mutual funds and a deferred variable annuity with a guaranteed withdrawal benefit.

In the case of Vanguard, the firm is offering target-risk funds for retirees: Managed Payout Real Growth, Managed Payout Moderate Growth and Managed Payout Capital Preservation.

"The philosophy behind them is the observation that investors in retirement want a 'spend only the income strategy' that allows them to keep principal secure," Daniel Wiener, editor of The Independent Adviser for Vanguard Investors, said in a release. "Vanguard wants to do that for you."

According to Wiener, the three products are designed to act like endowment accounts, making substantially equal (or level) monthly distributions while attempting to preserve capital. The payments will be determined in January, based on the prior three years' performance. "Until the funds have three years under their collective belts the payouts will be fudged, and most likely based on back-tested strategies," he said.

Unlike any other Vanguard fund, Wiener said these funds will invest not only in stocks, bonds, cash, REITs and inflation bonds, but also in market-neutral strategies and commodities, primarily through ETFs. "But, at their core these are essentially funds of Vanguard funds," he said.

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About Reverse Mortgages: Learn all about reverse mortgages at NewRetirement.com

Life Settlements on NewRetirement: Learn who should consider a Life Settlement at NewRetirement.com.

NewRetirement Retirement Calculator: Assess your retirement plan with the NewRetirement Retirement Calculator.

Life settlement fund surges

jberman — Tue, 21 Aug 2007 00:47:00 GMT

Investor Daily, August 20th, 2007

Australia's first life settlement fund has rocketed in the past four months to become one of the largest of its type in the world with funds under management (FUM) of half a billion dollars.

The Life Settlements Wholesale Fund (LSWF), launched in October 2004, has grown from $142.9 million FUM in April this year.

"We feel that the Australian market is showing great interest in the product," LSWF director Laken Mitchell said.

"It's still an education process because a lot of folks in Australia are not familiar with the asset class.

"Australian investors are very sophisticated, so it doesn't take them long; they see its tremendous potential."

Mitchell was part of a delegation of American life settlement industry experts who visited Australia last week.

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Life Settlements on NewRetirement: Learn about who should consider a Life Settlement and when on NewRetirement.com

Life Insurance on the Line

jberman — Sat, 04 Aug 2007 07:42:00 GMT

Marketplace, August 3rd, 2007

Lisa Napoli: A few weeks ago, a pair of Irish hedge funds filed for bankruptcy after some risky investments went south. Ritchie Capital had invested in what are called "life settlement policies." That's basically where investors buy life insurance policies and profit when the original policyholders die. As Marketplace's Amy Scott reports, it's not the only way investors are cashing in on matters of life and death.

Amy Scott: You've probably seen the ads on cable:

Life Insurance Ad: If you're a senior like me, you may be surprised at how much you can be paid for your life insurance.

If you're over 65 and short on cash, you can sell your life insurance policy to a company like J.G. Wentworth. So-called life settlement companies pool your policy with others and sell it on to investors in the form of a bond.

Nick Potter is an attorney with the law firm Debevoise and Plimpton. He says unlike viatical settlement companies that target the terminally ill, life settlement companies focus on healthy seniors.

Nick Potter: Someone who feels that, well I could use the money now, and I might as well sell the policy and have someone else wager on the duration of my life.

Ghoulish? Certainly. Shady? Perhaps. Life settlement firm Coventry First is under investigation. State officials say the company may have underpaid people who sold their policies. Those bankrupt Ritchie Capital hedge funds invested in Coventry's life settlements.

Who's cashing in your chips?

jberman — Tue, 31 Jul 2007 04:24:00 GMT

The New York Daily News, July 30th, 2007

Someone out there wants to place a bet on when you're going to die - and they're willing to hand you a chunk of cash now, while you're still alive.

This fast-growing business allows seniors to raise quick cash by selling their life insurance policies.

Years ago, seniors who didn't need life insurance anymore or could no longer afford the premiums didn't have many options. They could either let the policy lapse or collect the cash value, often a meager sum.

Now, a growing number of people older than 65 are entering into deals called life settlements where they sell off their life insurance to a third party for more than its cash value, but less than the death benefit.

"It's an asset that seniors never realized they had," said Doug Head, executive director of the Life Insurance Settlement Association.

There is a creepy catch: The sooner you die, the better it is for whomever bought your policy. That's because the new holder can stop paying premiums and collect the death benefit.

Life Insurance on the Line

jberman — Thu, 19 Jul 2007 01:15:00 GMT

Marketplace, July 17th, 2007

Amy Scott: You've probably seen the ads on cable:

Life Insurance Ad: If you're a senior like me, you may be surprised at how much you can be paid for your life insurance.

Nick Potter is an attorney with the law firm Debevoise and Plimpton. He says unlike viatical settlement companies that target the terminally ill, life settlement companies focus on healthy seniors.

Nick Potter: Someone who feels that, well I could use the money now, and I might as well sell the policy and have someone else wager on the duration of my life.

Basics of life settlements that seniors should know

jberman — Fri, 02 Mar 2007 03:06:00 GMT

The Ft. Collins Coloradoan, February 25th, 2006

Viatical settlements gained popularity in the 1980s as a source of cash for terminally ill life insurance policyholders.

In the 1990s, viatical settlements gave rise to life settlements. Life settlements are for owners of life insurance policies who no longer need life insurance.

The target group for life settlements is individuals age 70 and older with a two to 10 year life expectancy.

Generally, life settlement companies are the purchasers of unneeded life insurance policies.

The companies pay the premiums and hold the policies until the death of the insured at which time they collect the death benefits. Alternatively, the buyers may resell the policies, or package a group of policies and sell interests to institutional and other investors.

The policyholder selling his/her policy receives a lump sum. The amount depends on factors such as policy terms and conditions, and the policyholder's age and health.

The lump sum is generally more than the cash value of the policy but less than the death benefit. There may be income tax consequences to the policyholder. If the lump sum is more than the total premiums paid the policy owner has taxable income.